In a statement issued today, SEC Chair Jay Clayton emphasized that, although the timing of certain company filings may be impacted by COVID-19, the SEC is “keenly focused on ensuring that issuers and other registrants continue to provide material information to investors, including information related to the current and expected effects of COVID-19, as promptly as practicable.” In another statement, this one to a meeting this afternoon of the SEC’s Investor Advisory Committee, Clayton stressed the importance of providing information to investors, particularly “in times of economic shock and uncertainty.” The increased investor demand for information fueled by the uncertainties associated with COVID-19, together with the fact that, as a result of COVID-19, companies may not be able to file required periodic reports on a timely basis, has created “a challenge.”
“Importantly,” Clayton emphasized, “an inability to file required reports does not prevent issuers from issuing earnings releases and filing current reports on Forms 8-K.” (Emphasis added.) Even if companies are unable to file their periodic reports, he expects that SEC’s recent extension of conditional relief related to filing deadlines, (see this PubCo post), and the Corp Fin staff’s new detailed guidance regarding COVID-19-related disclosure topics (see this PubCo post) will allow companies “to provide prompt, period-end earnings information, and information regarding their past and expected future efforts to address the effects of COVID-19.” That guidance advises that “disclosure about risks and effects of COVID-19, including how the company and management are responding to them, should be specific to a company’s situation….For example, have your sources or uses of cash been materially impacted, or have you identified a material liquidity deficiency? Do you expect a material adverse impact to your supply chain or distribution channels?” Finally, even if earnings releases and 8-Ks are the vehicles, he stressed that the importance of companies’ providing “as much information as is practicable” cannot “be overstated.”
At the Committee Meeting
(Based on my notes, so standard caveats apply.)
In comments at the meeting, Clayton observed that investors are thirsting for information, noting in particular that the most valuable information is with regard to cash flows and operations in the current operating environment, especially with regard to the 30-day period to slow the spread of the virus. How is management planning to continue through those 30 days? And what if it is a longer period? How is management planning for more normalized outcomes as health concerns resolve? He expressed his hope that a framework would develop for more forward-looking information that is informed by advice from epidemiologists and other healthcare experts. In addition, he observed that one benefit of our markets is that investors communicate and cross-check information disclosed across industries, so that disclosure that seems inconsistent is surfaced.
In other comments at the meeting, in light of the fact that the Committee had championed mandatory disclosure about human capital, some of the Committee members noted the importance of information about human capital, observing in particular that issues such as measures to protect worker health and safety and paid sick leave can have an impact in posing systemic risk across the board. Clayton commented that the SEC has been encouraging disclosure in the areas of worker health and safety and how these topics fit within evolving health and safety norms. In the same context, one member also noted that the provision in the CARES Act allowing early withdrawal of up to $100,000 from 401(k) plans to weather the crisis could ultimately mean that many workers end up with no retirement savings at all.
Another member observed that it may be small biotechs that develop treatments to help us through this crisis, yet small cap firms have historically been affected much more dramatically in an economic crisis, noting, in particular, the impact of the 2008 financial crisis on small biotech firms. He advocated that the SEC take further action to help these small cap companies by making Form S-3 and Reg A more available. He also observed that he thought it unlikely that this would be the last 45-day conditional exemption that the SEC would provide. For example, determining impairment of accounts receivable under these conditions could be a “total guess,” he ventured. He advocated that the SEC go forward with the idea of allowing more flexibility in the frequency of periodic reporting. (See this Pubco post.)
For guidance on other legal, regulatory and commercial implications of the COVID-19 pandemic, see our Cooley coronavirus resource hub.